Additional Thoughts on School Canteen Food Pricing

Just some additional thoughts on the pricing of school canteen food. Previously, I noted that lower rentals was a bad explanation for the lower pricing of school canteen food. What are good explanations, then?

The first is that there is a price cap on the food price, explicitly imposed by the school through the tender bid, or implicitly in a sort of quid pro quo arrangement. Another realistic explanation is that school students have more limited resources, meaning that vendors lose profits if they raise the food price beyond the buying power of the students.

A friend brought up the idea of an ethical vendor selling food at a reduced (but still profitable) price. This too is a possible solution. However, I am more interested in the implications of introducing a single sub-optimal (or ethical) vendor into the market.

Making the standard economics assumptions, the sub-optimal vendor, by virtue of undercutting the competition, receives all the business. This state of imbalance results in ALL other vendors lowering their prices to match this sub-optimal vendor. This result is amazing.

I can imagine schools using this effect to the students' advantage, by setting up a single sub-optimal vendor, hence forcing the other vendors to that same price level. Students can even perform the role themselves by setting up some competing co-operative.

Why is School Canteen Food Cheaper?

I asked myself, why is school canteen food cheaper? Then I asked other people too.

"The rent is lower", some said. This seems to be an insufficient answer. One notes that demand for food in school is largely inelastic; meaning, price does not have a large impact on resulting demand. In such a scenario, it behooves the canteen stalls to raise food prices to some higher level such that it actually has an effect on demand, thus maximizing profit.

I then thought of the following: First, a canteen stall must be (at most, and at least) as profitable as any food stall elsewhere; this is a consequence of efficient markets. Second, since the tender for canteen stalls is open, this means that the final rent for the stall will rest at a level such that it renders the business just as profitable as any food stall elsewhere.

Now, if there was no constraint on the food price, the bids for the stall will rise to a level such that the required food price would be at the maximum tolerable. This is as discussed earlier. Conversely, if the tender has some requirement or constraint on the maximum food price, then the bids on the tender will be lowered, such that profitability remains constant.

In other words, it seems that low rent is a effect, not a cause, of food price being cheap. The real reason why school food is cheap is due to constraints on the food price, whether explicitly imposed due to contractual requirements, or implicitly through agreement (i.e., threat of tender being rejected/non-renewed if price complaints are made against the canteen vendor).

Blood and Bags

A medical helicopter has a special compartment for carrying blood bags; in particular, the compartment can carry 4 blood bags of any capacity.

Now, the maximum amount of blood needed for any heli-rescue mission is 4.95 units; any more and the patient is already beyond the capabilities of the medical crew. Considering this, it is wise for the helicopter to carry not more than 4.95 units of blood.

Another problem faced is blood wastage. Since blood transfusions involve connecting the blood bag to the patient, the blood in each used bag is 'contaminated' and cannot be reused for other transfusions. Hence, using a 4.95 unit bag for an patient that requires only 0.50 units of blood is discouraged, since 4.45 units of blood are not used and wasted. However, unopened bags can be reused for subsequent missions and are hence not wasted.

Considering the above, it is desired to choose some capacity for each of the 4 blood bags such that the amount of blood wastage in the worst case is minimized. It is assumed that the flight doctor is capable of accurately determining the exact amount of blood needed for transfusion before the transfusion takes place.

What are the capacities of the 4 blood bags?